The Ninth Circuit recently issued a decision regarding a vessel pollution insurance policy that could have implications for Hawaii. In Certain Underwriters at Lloyds, London v. Inlet Fisheries Inc., No. 06-35383 (9th Cir., Feb. 11, 2008), the Court determined Lloyds was justified in voiding a policy because the insured did not volunteer important information.
Prior to seeking a vessel pollution policy from Lloyd’s, the insured, Inlet, experienced two large oil spills in Bethel, Alaska, one at the city pier and the other in Steamboat Slough. (As a former resident of Bethel, I passed through Steamboat Slough many times on boat, dog sled and skis. The Slough acquired its name from steamboats abandoned there after traveling up the Kuskokwim River). When applying for the policy, Inlet responded to the request for “pollution loss history” by writing “None.” Inlet did not supply, and the application did not request, information about the condition of Inlet’s vessels or Inlet’s financial status.
After acquiring a policy from Lloyds, an Inlet vessel again spilled oil and pollutants when it sank in Steamboat Slough (thereafter undoubtedly making passage through the Slough by boat, dog sled or skis problematic). Inlet made a claim under its vessel pollution policy, prompting Lloyds to investigate both the incident and Inlet generally. Upon learning of Inlet’s failure to disclose the prior incidents, the poor condition of its vessels, and its pending bankruptcy, and after Inlet refused to cooperate with the investigation, Lloyds filed suit seeking a declaratory judgment that it had a right to void the policy ab ignitio under the doctrine of uberrimae fidei. The District Court granted summary judgment in favor of Lloyds.
The doctrine of uberrimae fidei imposes a duty of utmost good faith and requires that an insured fully and voluntarily disclose to the insurer all facts material to a calculation of the insurance risk. The doctrine was first recognized in 1766 and was codified in English law in 1906. In 1828, the U.S. Supreme Court incorporated the doctrine into American maritime insurance law. More recently, stand-alone coverage of maritime insurance referred to as vessel pollution insurance has emerged as a separate coverage of marine insurance in response to the 1990 Oil Pollution Act.
The issue in this case was whether the vessel pollution insurance issued to Inlet was appropriately characterized as marine insurance and, therefore, whether the doctrine of uberrimae fidei was applicable. The doctrine of uberrimae fidei requires a marine insurance applicant, even if not asked, to reveal every fact within its knowledge that is material to the risk. An insurer can rescind a policy if it can show either intentional misrepresentation of a fact, regardless of materiality, or nondisclosure of a fact material to the risk, regardless of intent.
Affirming the District Court, the Ninth Circuit held the federal maritime doctrine of uberrimae fidei, rather than state law, applies to marine insurance contracts. Further, for purposes of applying uberrimae fidei¸ the vessel pollution insurance issued to Inlet was appropriately characterized as marine insurance. The facts undisclosed by Inlet were material to the insurance risk undertaken by Lloyds and voiding the policy was justified.
Because the Ninth Circuit held that the doctrine of uberrimae fidei, rather than state law, applies to marine insurance contracts, this decision would presumably apply in a Hawaii case involving vessel pollution insurance.
